How A Harvard MBA Traded On Inside Info

On Nov. 19th, Samir Barai went online to the website of The Wall Street Journal to read a story that had to set off all kinds of alarm bells. The headline on his computer screen: “U.S. in Vast Insider Trading Probe.”

Barai, 39, founder of a New York-based hedge fund firm called Barai Capital Management LP, could scarcely believe what he was reading.

“Federal authorities, capping a three-year investigation, are preparing insider trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders, and analysts across the nation, according to people familiar with the matter.”

As Barai kept scrolling down the screen, the story’s detail could only have made his stomach churn. “The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say.”

Barai’s attention, however, would have been especially drawn to the story’s fifth paragraph. It noted that the Feds were examining a Silicon Valley “investment research” firm called Primary Global Research LLC that connected experts with investors seeking information in the technology and health care fields. Barai allegedly knew Primary Global well—he had been paying an employee in the firm for inside information for years, according to the federal investigators.

Later that day, tapping out a text message on his Blackberry, Barai admitted to a colleague at his firm that he had read the Journal story ten times. The Harvard MBA had good reason to panic, according to allegations filed by the government. For the past four years at least, he had been using inside information to trade in the public securities of a number of technology companies. In some cases, he allegedly got advance notice of revenues, profits and gross margins before it was publicly announced from paid informants inside the companies. In other cases, he allegedly got the inside dope from Winifred Jiau, a contact at Primary Global in Mountain View, California.

That day, Nov. 19th, 2010, it was hard for Barai to put the Journal story out of his mind. Indeed, later that evening, during a lengthy exchange of messages sent from his Blackberry, he told Jason Pflaum, a 38-year-old research analyst at his firm, that he had also read a follow-up article by the news agency Reuters.

“FUUUUUCK,” CONCLUDED THE HARVARD MBA IN A MESSAGE SENT FROM HIS BLACKBERRY.

As Barai summarized the contents of the WSJ and Reuter stories to Pflaum, according to investigators, Pflaum played dumb, allowing his boss to relay the highlights as if he had no knowledge of what was going on. What Barai didn’t yet know was that Pflaum, who began working for Barai Capital in March of 2008, had already agreed to cooperate with federal investigators in exchange for a reduced sentence.

“Fuuuuuck,” concluded Barai. “Delete ur bbm chart,” he finally wrote before signing off for the night and trying to go to sleep at his small high-rise apartment in lower Manhattan.